Belarus Sends Confusing Messages to Investors

Last year net foreign direct investments into the real sector of Belarusian economy dropped by 75 per cent compared to 2011, according to recently release figures of the Belarusian Statistics Committee.

The pretext for sentimental patriots to moan is another reason for state authorities to rack their brains. They have eased tax burden, extended territories with privileged regimes, and achieved impressive results in the World Bank's Doing Business ranking.

But investors ignore the country with qualified, quite cheap and hard-working employees with opens access to the Russia-Belarus-Kazakhstan Customs Union with its market of 170 mln people.  Big foreign businesses may secure unique privileges and cordial greeting, but then expose themselves to significant risks.

Small enterprises risk less, but are to go through all thickets of Belarusian bureaucracy, which is often unbearable even for local dwellers. Bad image in the Western media and political unpredictability also add to investors' unwillingness to invest.

Still, these factors can hardly explain the 75 per cent fall of net foreign investments. 

 Picky Underperformer

Belarus’ underperformance at attraction of foreign investments is no news.  Even compared to other states of the Commonwealth of Independent States its achievements are poor.

With this gloomy background, the 75 per cent fall of net foreign direct investments within a single year surprises even more.  

More specific figures help to ease the astonishment.  The $3,974 mln of net foreign direct investments in 2011 were unprecedented for Belarus and mainly appeared from one big deal.

Russian giant Gazprom purchased Beltransgaz’s stock for $2,500 mln. Without this transaction, the index’ decrease would be more modest.

In 2012 Belarus failed to privatise any big state company.  Or, perhaps, it did not really need it. As Belarusian economist, Leanid Zaika, explained to Deutche Welle, “the use of grey schemes in “solvents business” has brought to Minsk about $ 2,500 m, which has fully replaced foreign investments”.

Thanks to the solvents scheme, Belarus could continue behaving like a picky girl, or sooner Lukashenka – acting like her austere father. To please him foreign investors should bring significant resources, latest technologies, and welcome state’s representatives at their company’s Advisory Board. But such investors are rare, if not unreal. 

However pleasant the process of being choosy can be, Lukashenka will probably have to give up this privilege. In 2013, Belarus is supposed to say goodbye to another $3 bn for covering its external debt.

The solvents business has stopped. Chances for cheap foreign credits for the debt’s covering have lowered. The need for investments is growing.

Spartak, Kommunarka, Luch. What Is Next?

The government failed to attract enough investments to Belarus in 2012, it has also damaged the country’s investment climate. Last November the conflict between Lukashenka and a foreign investor – Marat Novikov – resulted in more than two times’ increase of the state’s shares in Kommunarka and in Spartak, dissolution of both companies’ Advisory Boards and assigning state officials as their sole directors.

But Belarus did not stop there. On 28 December 2012 an extraordinary general shareholders meeting of OJSC “Luch” voted for transfer of 5.4 per cent of the company’s stock to the state. Before that, the state’s share constituted only 0.18 per cent of stock.

It was the state’s representative in the Advisory Board of Luch, who initiated such voting. Initially, the representative spoke about increase of the share up to 25 per cent. But further steps of the state with regard to the company’s stock are still unclear.

Reaction to these facts was quick. The terms nationalisation and “reprivatisation” seem to be the most popular among investment analysts and potential investors, when they speak about Belarus now. In such environment Lukashenka’s words during entrance speech at the 7th Belarus Investment Forum that “we guarantee the best conditions for doing business to investors” sound like an empty promise.

Peculiar Attractors for Investment

Still the Belarusian government is trying to attract foreign investments.  Belarusian lawyers are working on perfection of laws on investments, concessions and public-private partnership. The complicated tax system is becoming simpler. Investment forums are growing both in scale and in number. Belarus’ rating in Doing Business is rising.

Belarus has also been providing the most wanted foreign investors with privileges and benefits on a case-by-case basis. Among the newest appeals is the creation of Chinese-Belarusian Industrial Park – today the most favourable place to do business in Belarus.

While trying to get investors interested in entering the Chinese-Belarusian Industrial Park, the state uses again its probably most effective novelty in terms of investments over recent years: High-Technology Park’s tax privileges. In the Chinese-Belarusian Industrial Park, the taxes are even lower.

Investments' attraction through diplomatic cooperation is another tool. Recently, Lukashenka has assigned the special task of each Belarus’ foreign ambassador to attract investments. Traditionally, the assignment looked more like an order and the ambassadors are now responsible for the tasks received.

Lukashenka himself also is active in cooperation with selected foreign ambassadors. Last December he had a very friendly meeting with the Iranian ambassador Seyyed Abdollah Hosseini. Lukashenka’s warm attitude to the ambassador is quite explicable. During four years of his stay in Belarus Iranian investments in Belarusian economy rose from $6m to $960m.  

However tough are the efforts, friendly political relations and privileged tax treatment are not enough to satisfy Belarus’ financial hunger. Not so many countries in which state authorities dispose of investments instead of private parties still exist. And capital from Russia, Venezuela, Azerbaijan and Iran make only a small part of the world’s investments.

Businessmen from most other countries want the host state of their investments to have stable economy, predictable legislation and trustworthy government. Belarus makes different efforts for investments’ attraction, but among the most important factors, it still does not have much to offer.

Darya Firsava is a Minsk-based lawyer working on her PhD and leading a number of educational projects in Belarus.

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